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Ambac Collapse: Anticlimax of the Week

The recent hijacking of ABK by Moody's and unknown third parties,
however, violates the integrity of the art of trading equities, and I
feel the need to voice my concerns.

There is a story in a stock's movement that often tells who is doing
what, and, in retrospect, for what reasons. In the four months I have
been trading bond insurers, I have developed an understanding of how
institutional traders enter, exit, and manipulate various insurers. It
is this experience, combined with a review of MBI's trading patterns
between the hours of 9:30 and 11:30 am that leads me to believe that
ABK is being manipulated. For what reasons I don't know, but when
upwards of $300,000,000 is being so carefully moved through Ambac's
market, an alarm should be sounded in every trader's mind.

As you all know, (or should know), Short-selling of ABK's shares has
been temporarily banned. Yet, the steady downward movement of trading
in Ambac reflects not the free-fall of MBI between 9 and 11 am, but
the contrived downward pressure that is reminiscent of one of the many
bear raids - scars of which I bare - that has comprised Ambac's
trading activity since July. Traders are effectively selling Ambac
short through the exercise of options puts that allow them to
simultaneously buy and sell shares at progressively lower prices,
without the obligation of having to buy them back. There are problems,
however, with the theory that Moody's et. al. have in mind a goal of
destroying ABK through the depletion of shareholder value.

Unlike Lehman Brothers, Ambac cannot be forced into insolvency by the
ruthless destruction of its market cap. This is a company that has
seen the value of its shares plummet to $1.04; if bankruptcy was to be
declared, it would have happened then. Rather, Ambac can only be
materially effected by the lowering of its ratings, which would
require it to post capital to cover additional obligations. Whether
Moody's is saber-rattling or not, I cannot tell, and for that matter,
don't believe anyone else can either, but in all probability, the Fed,
Congress, and the Treasury will likely push through legislation soon
allowing the government to effectively sanitize the balance sheets of
banks. For Moody's to threaten a ratings downgrade under such dubious
reasons as the possible further deterioration of its mortgage
portfolio sounds shaky given recent developments, But I don't know.
Maybe Moody's knows something I don't.